Note: On Tuesday, May 4, we were pleased to feature author and educator Tom Wallace in a webinar entitled, “Myths, Misunderstandings and Misinformation About S&OP.” Drawing from his decades of experience as a forecasting and sales planning leader, Tom revealed ten myths that can quickly derail an S&OP process and damage corporate performance and profitability.
Tom’s fascinating presentation is a must-watch for business people wanting to master the finer points of Executive S&OP. Click here to view the session on-demand.
If the number of questions that were submitted during the webinar are any indicator, Tom’s presentation certainly got the audience thinking! Tom was kind enough to respond to each of these questions following the live session and you can find his answers below.
(To learn more about Tom Wallace and Executive S&OP, we encourage you to visit www.tfwallace.com and consider picking up his book Sales and Operations Planning: The How-To Handbook, 3rd Edition.)
How to Launch Executive S&OP
Webinar Participant: Where do you start on creating an Executive S&OP?
Tom Wallace: With top management agreement to do a 90-day live pilot. (How-To Handbook, Third Edition, Pages 75-80.)
Webinar Participant: What is the best way to convince the team to attend the meeting and to express how important they are to the entire process?
Tom Wallace: Get top management to convince them. Seriously, if the leader of the business and his or her staff are truly committed to Executive S&OP, most of them will willingly go through the learning process and do their parts.
Webinar Participant: I work with small and midsized manufacturing companies. It is hard enough selling them on Manufacturing Resource Planning (MRP). Where do we start to get them to understand S&OP?
Tom Wallace: Conduct an executive briefing. Get a decision from top management to do a 90-day live pilot. Then, if that looks good to them, and it almost always does, proceed to cut over the rest of the families to Executive S&OP. (How-To Handbook, 3rd Edition, Pages 69-73)
Webinar Participant: Based on the myths of a company not willing to change for S&OP and education being the solution, what’s the best way to teach your executives and what material do you show them?
Tom Wallace: I’ve mentioned the Executive Briefing, and that’s by far the best way to get started. However, they’ll need more input than that and there are a substantial number of books and videos to help you with that at www.tfwallace.com.
Webinar Participant: How do you handle a pilot program when compromise may often include items or pieces (demand or resource constraints) outside of that pilot?
Tom Wallace: If possible, select as your pilot family one with little or no shared resources. If you can’t avoid that, then estimate the impact of the “outside the family” demand to show an approximation of the full picture on the resource.
Webinar Participant: Does Tom have a perspective on implementing S&OP in a services / distribution environment versus traditional manufacturing?
Tom Wallace: it’s more similar than different. The basics are the same: demand, supply and the related financials. (How-To Handbook, Third Edition, Page 166-167)Overcoming S&OP Challenges
Webinar Participant: Tom has been preaching Executive S&OP for some time now – what does he think is the single most important element of a successful implementation?
Tom Wallace:The three most important things in real estate are location, location, location. The three most important elements are people, people, people. They’re the A item. Your success with the process will hinge almost totally on the quality of the job done with getting the people down the learning curve on the why’s, what’s and how’s of Executive S&OP.
Webinar Participant: Once you’ve established buy-in for the need for an S&OP process, what are some of the larger challenges / obstacles that you’ve faced and how have you overcome them?
Tom Wallace: Most of the problems are mindset issues: reluctance to change, aversion to conflict, lack of organizational self-discipline, and discomfort with accountability. These are almost always fixable by two things: a) strong leadership from the top and b) education and learning.
Webinar Participant: In a regional environment (e.g. Latin America region), what is the best approach? Should we start S&OP from the regional level and force it down to the markets or start with one or two markets with a pilot?
Tom Wallace: Demand planning should be done at the market level. If the markets have their own manufacturing, they can then do the entire Executive S&OP process. If most markets do not have manufacturing, then typically the S&OP process occurs at the regional level using demand planning input from the markets. (How-To Handbook, Third Edition, Page 167-169.)
Tom Wallace: We have a mature S&OP process but have difficulty achieving conclusive results after the Executive S&OP. Any thoughts?
Tom Wallace: Forgive me, but I suspect that while your process may be mature, it sure doesn’t sound effective.The essence of this process is decision making. To fix it, you might self-administer the Executive S&OP Effectiveness Checklist, which you can pull off our website: www.tfwallace.com. Go to downloads/free downloads. (How-To Handbook, Third Edition, Page 211)
Leading the Executive S&OP Process
Webinar Participant:Who leads the individual steps like the pre-meeting and the executive meeting?
Tom Wallace: The overall owner of Executive S&OP is the leader of the business. The steps are often facilitated by the S&OP process owner.
Webinar Participant: Who should be the process owner of S&OP?
Tom Wallace: Someone who knows the business, has good peer relationships, good communication skills with top management — those kinds of things. It doesn’t matter much which department he or she comes from.
Webinar Participant: Who and at what level is the “executive”? You used P&G and Dow as examples, but who is the top level person participating in the executive process.
Tom Wallace:The “executive” is the leader of the business. The “business” is that point at which demand and supply align and bottom-line accountability resides. In large companies, this is not at corporate but rather at a business unit level. The results of the various business S&OPs are rolled up and presented to the CEO, CFO etc. to serve as inputs to the quarterly earnings call.
Webinar Participant: Is it the supply chain team (that leads the process)?
Tom Wallace: Supply chain is only one functional area that plays a role in the Executive S&OP process. There are others of equal importance.
Webinar Participant: Why is product development not involved even before data gathering? Isn’t it already too late at demand planning time onwards as sales people have already submitted the forecast?
Tom Wallace: Product development is involved in developing new products. Their entry point to Executive S&OP is demand planning, i.e., bringing in the status and schedules of the various projects. Sales people submit forecasts as one input among many into the demand planning step. (How-To Handbook, Third Edition, Pages 34-36.)
Defining the Executive S&OP Process
Webinar Participant What is time commitment for the people collecting the data and organizing the meeting for execs, and how do you get away from continual pull cycle of info only and drive more improvement to streamline utilization of resources prior to the meeting?
Tom Wallace: This varies a great deal on company size and what kind of software is being used. Companies using Excel as opposed to S&OP-specific software will typically spend more time on these activities. Regarding the second part of your question, you might consider getting one of your internal 6 Sigma Black Belts involved in reworking the process.
Webinar Participant:What’s the main difference between the executive meeting and the pre-meeting regarding info?
Tom Wallace:The pre-meeting is more detailed, both in terms of data and the depth of the discussions.
Webinar Participant:How often does the pre-meeting occur between demand planning and supply planning?
Tom Wallace: Never, in my experience.
Webinar Participant:Is a monthly timeframe the right cycle? In your experience, what issues have you seen in a quarterly S&OP process?
Tom Wallace: Virtually all businesses I’ve ever seen are simply too fast-paced to refresh their demand and supply plans quarterly. My advice: don’t even consider doing it quarterly. It won’t work.
Webinar Participant: What is the best practice planning cycle time of the S&OP process?
Tom Wallace:Most companies will conduct their Exec Meeting around the 15th of the month.
Webinar Participant: What kind of range for the number of product families is appropriate for Executive S&OP?
Tom Wallace:Somewhere in the range of 5 to 10, or a half dozen to a dozen, the reason being that these are the items typically discussed in the executive meeting, which should not exceed two hours routinely. Many companies use sub-families to get additional granularity where needed and these would be more prevalent in the pre-meeting and earlier steps.
Webinar Participant: Does S&OP planning function the same way for distribution based organizations?
Tom Wallace: Yes. In implementation, you may need to work a bit harder to determine which supply elements will be tracked in the supply planning step.
Webinar Participant: Can you clarify the level of detail for Executive S&OP? It seems to be volume, but things like new product plans and margins involve mix.
Tom Wallace: Often mix data enters into the process but it must be aggregated to a volume level to serve Executive S&OP.
Webinar Participant: Should the result of an S&OP session be a consensus forecast or a production schedule?
Tom Wallace: Both, as well as updated financial plans and perhaps revised schedules for new product launch. And, updated hedge to support risk management
Webinar Participant: I am constantly battling the separation of these distinct processes now lumped as one and referred to as ‘sales and operations management’. All this tends to do is lead to confusion and unnecessary battling over terminology. It is part & parcel of the misunderstanding about the amount of time required for this most important process. How do we change or get the correct terminology mindset back?
Tom Wallace: We’ve developed the term “Executive S&OP” as a defensive measure against the morphing of Sales and Operations Planning to include pretty much all of what used to be ERP. Executive S&OP term is gaining traction, but it’s not happening quickly.
Webinar Participant: Where is the boundary between S&OP and Integrated Business Planning (IBP)?
Tom Wallace: I’m not sure what IBP is. I’ve been told by a senior person within the Oliver Wight group, the organization that coined the term, that it’s quite close to Executive S&OP.
Optimizing Executive S&OP Performance
Webinar Participant: Do you have any concrete tips on how to get to a “single number”? We often struggle in talking about financial forecast versus sales forecast.
Tom Wallace: They should be one and the same. Sales forecasting is done in units and then “translated” into dollars. This is why finance people need to have hands-on involvement in the demand planning step. (How-To Handbook, Third Edition, Page 66.)
Webinar Participant: How can we best quantify the success of S&OP since many other factors determine overall success such as days on hand and delivery percentage?
Tom Wallace: Some people apportion a percentage of the improvement to Lean, some to Six Sigma, some to Executive S&OP, etc. Others take the position: “If we’re getting the improvement, we’re not going to care about exactly where it’s coming from. We know that if S&OP is working well, it’s making a big contribution.” Since it doesn’t cost much to implement the process, many people don’t feel the need to relate actual results to what was in the cost justification.
Webinar Participant: What will be best way to increase time horizon discussed during Executive S&OP?
Tom Wallace: 1) Once per year, they go out into the future 15 or more months when they do the annual plans. All we’re saying here is to do that every month. (It’s not as much work as it may sound, since you’re only adding three months of forecast every three months.) 2) Even if the forecast is uncertain 12 or more months out, it’s more accurate than zero — which is the default forecast if your horizon is four months. Forecasting over the medium and long range should not be by SKU but rather by aggregate, market-facing families that can be much more validly forecasted, in most cases using external data.
Webinar Participant: How can Operational S&OP make be tied effectively to Kanban or min/max strategies? These strategies defeat the purpose of a time-phased forecast leaving S&OP as an executive review focused on volume.
Tom Wallace:Executive S&OP sets the volume plans (e.g., sales rates, run rates, etc.) For Operational S&OP, the specific, detail-oriented processes such as Kanban and others operate with their own logic within the framework of the volume plans set by Executive S&OP. (How-To Handbook, Third Edition, Page 17-18 .)
Webinar Participant: Which aspects in S&OP need to be looked at closely to help with highly volatile demand products? How can you best stop forecasting from being viewed as useless exercise?
Tom Wallace: Start with a live 90-day pilot. If you get good results, then make sure that everyone understands that the forecast played an important role and that it’s not a useless exercise. As you bring the rest of the families into Executive S&OP, pay close attention to the forecasts and work hard at making them better and better. And as they get better, make sure everyone knows.
The Future of Executive S&OP
Webinar Participant: What improvements do you foresee in S&OP in the next 5-10 years? What is your vision?
Tom Wallace:Executive S&OP will continue to grow in capabilities, and will be used in more ways to support running the business very well. Its job is to help top management, and companies will continue to find creative ways for that to happen. S&OP-specific software will help in this, particularly with simulation. By 2020, it will be the de facto standard for managing those parts of the business that deal with demand, supply, and related financials.
